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CEO, GuildHE

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When I can’t stand the wait for the latest book by a favourite author, I re-read earlier stuff (just how long is Hilary Mantel going to take to finish the trilogy?) and ditto funding reviews.

As the sector responds to the Philip Augar-led independent panel’s call for evidence (deadline 11.45pm tonight), let’s start with Dearing who talked about a compact for higher education between “society, as represented by the Government, students and their families, employers, and providing institutions.” All had a part to play. I’d argue that holds good when thinking about post-18 education as a whole. And when it comes to paying, all those who benefit – government, learners and employers – should split the bill.

Bend me, shape me

The precise amount, source or balance of funding doesn’t have to be the same across different routes and qualifications – there are lots of good reasons why those might vary. But there should be a clear rationale for the approach in each case.

Direct grants for teaching, income contingent loans, and levy funding all have a part to play – either singly or together. And similar qualifications at similar levels should have broadly similar incentives, otherwise it risks distorting the choices made by students and employers.

It’s not sustainable to have two routes to the same qualification level – degrees and degree apprenticeships – where in one route all the cost contribution falls on the graduate, and in the other it all falls on the employer. There’s a folk memory in government that “loans don’t work for apprenticeships”. Maybe not at lower levels but why shouldn’t degree apprentices make a graduate contribution after they complete? And why shouldn’t employers be able to use levy funding flexibly, to pay for work-relevant HE? The whole loan system needs more flexibility and to move towards funding by credit to encourage part-time study, innovation and student choice.

Drain the swamp?

But in practice, stuff gets in the way of government behaving rationally. Post-18 education (in England) isn’t a system. FE and HE are separate sectors, subject to different legislation and separate funding bodies responding to different policy objectives and with different budgets. You can set out to do something sensible and get stuck in the bureaucratic swamp.

Can this review do better? Well an announcement last week by the ONS might just help. It will work with other national statistical agencies to review the way student loans are treated in the national accounts. If the treatment changes (the Commons Treasury Select Committee said they are more like partially repayable grants) then you start to tackle the “different sorts of money” problem and the risk that accounting rules distort policy choices.

Because loans don’t count against the deficit until they are written off (and never count against the deficit at all if the loan book is sold in the meantime) there’s an incentive for policy makers to prefer them to grant funding, even in cases where grants are more likely to be effective.

A more rational approach to expenditure, one that compared like with like right across post-18 funding, could help fix some of the obvious problems with the current system, such as the different treatment of Level 4 and 5 qualifications.

Cymru am byth

It could help do the right thing in HE too. GuildHE agrees with the NUS and others that government should restore means-tested maintenance grants as part of a package to address student poverty. Abolishing maintenance grants wiped £2.5bn off the deficit. But the long-run saving to the taxpayer is very much lower because only a small part of the additional loans gets repaid.

We also think part-time HE needs a different funding model of lower fees topped up with extra teaching grant. This would reflect the generally lower cost to the public purse because most part-time students are working. Both are being done in Wales following the Diamond Review. But you can’t help thinking that for so long as loans flatter the deficit, Treasury will find it a tougher call East of Offa’s Dyke.

Magic money tree

This isn’t “consistent with the Government’s fiscal policies to reduce the deficit and have debt falling as a percentage of GDP” as the review requires. But then neither was the Prime Minister when she increased the loan repayment threshold to £25,000.

It was a good call because the earlier decision to freeze the threshold was unfair and damaged the credibility of the loan system: indeed, we think the government should build on this and rule out retrospective changes to loan terms and conditions in future. But it was roughly £3,000 more than was needed to restore the original promise that the threshold would increase yearly with inflation. And it increased the long-run taxpayer cost by about £2bn a year.

So, funding for post-18 education doesn’t have to be zero-sum: extra money can be found to meet policy or political imperatives. The budget should be enough to sustain high quality teaching. Adult education funding has been cut significantly over the last decade. In HE, the Treasury Committee found that, while the 2012 reforms increased funding significantly in the sector as a whole, universities “are now being funded sustainably, with teaching now typically breaking even.”

Institutions have a reciprocal responsibility to provide value for money and reduce the costs of studying are far as possible. Regulators should hold them to account if they don’t. Universities must be more transparent about how fee income is spent, including showing the range of services it funds. But what is meant by value should be guided by students’ views and by wider society not just the current Minister’s opinion. HE fulfills a broad range of economic, cultural, social, and intellectual purposes – and graduates and taxpayers are major funders in their own right. Government can’t just impose a definition of value.

Splitting the bill

And we need a more open debate about the balance of costs between taxpayers, learners and employers. The estimated split for the costs of the HE system is now roughly 53%:47% between students and the taxpayer. But there’s no settled consensus about what the split should be. As the Treasury Committee said, this split has varied by 10-12 percentage points in recent years. GuildHE thinks that, as resources allow, the share of costs borne by students should continue to fall towards the 40%:60% split in place before 2012.

Finally, there has been a lot of noise about differential fees. GuildHE rejects the idea of varying fees by graduate earnings. Salaries after graduation vary by prior attainment, socioeconomic class, gender, race, disability, subject studied, and sectoral and local labour market conditions. And as another, earlier review said: “Any attempt, therefore, to confine the conception of the return on educational investment to that which can be measured by earnings differentials is bound to be incomplete and runs the danger of being seriously misleading.” Dead right, Lord Robbins.